CBS Evening News

Thousands Conned in Fake Health Insurance Scams

Jewelry maker Beth Wicker is still recovering from the stroke she suffered last April. But she has not recovered from what came next. While still in the hospital, Beth was told her health insurance policy - which was supposed to be paying her bills - was fake.

"That this is fraud," Wicker said. "The insurance I thought I had doesn't exist."

The call to Wicker's cell phone came from Scott Richardson, the top insurance regulator in South Carolina.

"We wanted them to know they were in a bad deal," said Richardson.

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This year, South Carolina became one of 28 states to shut down one of the biggest consumer frauds ever uncovered. Officials are still counting the victims, but tens of thousands of people lost tens of millions of dollars buying what they thought was legitimate health insurance.

One of the largest scams involved an official sounding group called ATA, the American Trade Association, which was never licensed to sell insurance. Sometimes customers like Wicker would receive policies from real companies whose names were being used without permission.

Meanwhile, David Vladeck at the Federal Trade Commission has cracked down on a different scam, where an estimated 100,000 families lost close to $100 million. The FTC says 3 companies - Health Care One of Arizona, United Benefits of Tennessee and Consumer Health Benefits in Florida - promised their customers major medical insurance. But they only gave them medical discount cards - which were typically worthless.

"More often than not the doctor or pharmacy would say 'what is this?'" Vladeck said. "They didn't recognize them at all."

Investigators say the scam targeted middle-aged Americans who lost their jobs and their company-sponsored health insurance during the recession, couldn't afford insurance on their own and then went on the Internet looking for something different.

Thousands of victims also responded to infomercials showing speeches by the president and pictures of the Capitol, implying that these were the promised benefits of health care reform.

And if you called the number shown on screen, you might have spoken to a man who's now a whistleblower on the organization.

"The basic scam was selling insurance," he said.

CBS News agreed to withhold his name, but he worked briefly for a scam operation, before blowing the whistle. The sales force, he says, was ordered to brazenly lie to desperate people, with sales managers roaming the floor, yelling out "TAFT."

He said that stood for: Tell them Any F***ing Thing.

"It didn't matter what you had to tell them, you got that money and you got that money right then."

Beth Wicker lost the premiums she paid, still owes medical bills of around $17,000 and still doesn't have insurance. She often wonders why the scammers aren't in jail.

"I don't know why somebody can't track them down and shut them down instead of letting them just continually do this over and over and over. I don't understand that," Wicker said.

Despite this theft of tens of millions of dollars, no investigation so far led to an arrest and the scammers are still out there. In several jurisdictions CBS has learned indictments are imminent.

So what can consumers do? There are two key things to know. First, don't give in to any sales pitch that pressures you to act now. That's a red flag. Second, health care products like "limited liability," "mini med," insurance, even medical discount cards can be legitimate, but they need a license and that can be verified by checking with your state insurance department.